Fundamental Analysis News Trading

Fundamental Analysis News Trading

Submitted by adil on Tue, 06/03/2014 - 18:07

Let's Talk Fundamental Analysis

What is Fundamental analysis? This is a basic question that is usually asked by the new entrants in the market. Therefore, it is very important to know what fundamental analysis is. It is a study of asset in which all the internal and external factors that affect the asset price are taken into account. The factors include, company data and global events with many interrelated events that affect the price of various underlying assets and its various classes.

So What Is It About?

It is not possible for investors to get a grip on all sorts of market data that is released, or to understand it completely. However, after the introduction of the internet, a trader can now focus on the selected assets and the factors affecting those assets. Despite all this, it is still necessary to stay updated with latest financial and global news so as to use that information when placing a trade.

With fundamental analysis news trading, a trader is required to pay heed to specific news related to:

Natural Events

Even the basic commodities, such as, soya bean, corn or oil can be affected by the natural calamities and weather uncertainties. The law of supply and demand applies to all the assets, for example, when corn fields are wiped out due to heavy flood and storm, the supply of corn reduces, which eventually increases its price. However, some calamities are much easier to predict, such as a rainy season in the United Kingdom. During a rainy season in the UK, less money is received from tourism, which adversely affect the consumer spending and results in increasing rate of unemployment. Another example is the flood of 2011 in Thailand, which deteriorated the value of Japanese Yen because Japan couldn’t export the goods that had an export route from Thailand.

Political News

News and political events, including war, can have a serious impact on the asset price. For example, the Iran issue that has been in the limelight for more than a year caused high volatility in the oil market. Strait of Hormuz is controlled by Iran and it consists of almost 33 percent of the total oil transportation. It is the fourth largest gas and oil producer in the world. Therefore, as the production and supply of these resources changed by Iran due to the economic sanctions and political distress, the price of crude oil was directly affected by it.

Market Sentiments

The market sentiments have always played a vital role in the trading of financial instruments and pessimistic market view shows declining economic trend. When sentiment of the investors is high, their spending increase and as a result, it boosts different areas of the economy.

Fear, on the other hand, drives the market. For example, an individual who fears that the value of the Euro will fall in the future will find other areas to invest his money. He would probably invest in gold or more stable currency like US dollar. In 2012, Spanish debt ignited the fear, which caused the value of Euro to decline by 1 percent in a single day and as a consequence, the value of EUR/JPY was pushed down at its lowest level since 2000, and also declined the value of EUR/USD to its lowest within two years. The opposite of this situation was observed when the population of Greece casts its votes in the Euro-friendly government causing the value of Euro to increase by 2 percent in a day.

Economic Data

Economic data can instantly effect the market directions. The data provided by research agencies, governments, and companies carries a different level of importance, but it can have a prominent effect on the asset. This is the reason why using an economic calendar is crucial for binary traders, because a good calendar provides the release time of important data and will also provide the background of that data release. Following are some of the key data that is released and is important to look out for:

Gross Domestic Product (GDP) – GDP is a measurement of the total value of goods and services that are produced in a country. It is a representative of the economic health of the country.

Rate of Interest – This rate of interest is an amount paid by banks to businesses, organizations, and individuals who deposit their money in a bank. Usually, central banks use these rates to change the economic situation by effecting saving, spending and inflation. As we all know, the higher rate of interest means higher will be the currency price, because an increase in the rate of interest, attract foreign investors to purchase that currency and hold on it for as long as they can benefit from higher rates.

Retail Sales – As the name suggests, it includes a measurement of retail sales. This includes the sales from the vending machines, catalogues, and stores, but it is always directed to consumers. Retail sales are calculated by taking a sample of retailers that represent the entire economy. For example, in the United States of America, the sampling model consists of 12000 companies. The data are further broken down into other categories, such as, electronics, food and clothes. But it excludes automobiles like cars that are considered to have a volatile market and are likely to disrupt the entire trend. Spending of the consumers consists of almost 66 percent of the total production of the country. Therefore, it seems to be of significant importance and should be observed carefully.

Rate of Unemployment – In order to assess the worth of the economy and to understand how they are performing, there is no better way to assess it than to look at the rate of unemployment. Non-Farm Payroll is one of the crucial indicators and constitutes about 80% of the United States work force. A stable economy usually has a low rate of unemployment, but the moment companies stop hiring individuals and start cutting down the jobs, it is considered bad for the economy.

A large amount of data is being produced and released around the world every minute, which causes market movement and create opportunities to earn higher returns. A well designed economic calendar will not only keep you informed about the important events, but will also represent the market sentiments, like Eurozone sentiment. However, it should be remembered that fundamental analysis is very effective when it is used in combination with technical analysis. Moreover, new entrants can also benefit from this calendar as it can prove to be a successful profitable strategy.